Infrastructure Financing through Islamic
Finance in the Islamic Countries
78
The Indonesian Infrastructure Guarantee Fund (IIGF) was established in 2009 to provide
guarantees for Government Contracting Agencies to fulfill the contractual obligations of the
Cooperation Agreement of PPP projects.27 The IIGF guarantee scheme improves the
transparency and governance of the guarantee process and enhances the credit-worthiness
and bankability of projects. The guarantee encourages private sector investments in
infrastructure projects as it mitigates risks not covered in the market and has contract
agreements that comply with a common standard. Beyond the guarantee provided by IIGF, the
government also provides guarantees on certain PPP projects under Presidential Regulation
No. 78/2010 on infrastructure Guarantee for Public Private Partnership.
4.1.4. Legal and Regulatory Framework for Infrastructure Investment
Being a civil law country, most of the initiatives related to infrastructure development and
finance in Indonesia are governed by laws and regulations. The legal and regulatory
framework for infrastructure investment consists of acts and presidential decrees which
become the basis for regulators, authorities and market players to internally regulate and
apply infrastructure financing. Three broad categories of laws related to infrastructure
financing can be identified. The first of these are laws and regulations relating to infrastructure
related issues. Presidential Decree No. 3/2016 identifies the national strategic projects and
identifies the processes of permits and licensing, government procurement, government
guarantee, debottlenecking, spatial planning and land acquisition.28 Some other laws related to
infrastructure are shown in Table 4.1.5.
Second are the regulations that govern PPP in the country. Presidential Regulation No.
38/2015 on the Cooperation between Government and Business Entities on the Procurement
of Infrastructure outlines the regulatory framework for implementing PPPs in the country.29
The Minister of National Development Planning/Head of National Planning Agency Regulation
No. 3/2012 on General Guidelines of Implementation of Cooperation between the Government
and Business Entity in Infrastructure Provision outlines the operational guidelines for the
implementation of PPP projects.
Table 4.1. 5: Legal and Regulatory Framework for Infrastructure Investment
No Laws Regulated Items Infrastructure Investment
1. Act Number 25 Year 2004 National Economic
Development System
Basis for National
Infrastructure development
2. Presidential Decree Number 2
Year 2015
National Medium Term
Development Planning
Basis for Medium Term
Infrastructure Planning
3. Presidential Decree Number
122 Year 2016
Accelerating Prioritized
Infrastructure Projects
Basis for Prioritizing
Prioritized Projects
5 Act Number 2 Year 2017 Accelerating Construction
Projects
Basis for Accelerating
Construction Projects
Source: Author’s own
27 Presidential Regulation No. 78 of 2010 on Government Guarantee for Cooperation Project between Government and
Business Entity provided by Infrastructure Guarantor Company established the Indonesia Infrastructure Guarantee Fund
(IIGF). The Ministry of Finance Regulation No. 260/2010 on Implementation Guidelines for Guarantee in Infrastructure
under PPP Model provides further procedures of requesting the funds from IIGF.
28 The information is taken from Utomo and Haryanto (2016).
29
framework